UK Inflation At 1.5 % Undershoots Previous Predictions And Will Keep Interest Rates Low For Longer

According to the latest Office For National Statistics inflation in May has fallen to 1.5% assisted by a fall in food prices and lower fuel costs.  This is much lower than the BOE/Mark Carney had previously predicted and it’s the lowest level for 4 1/2 years.  If it falls any further it may even trigger a letter of apology from the BOE to the Chancellor for dropping below the indicated level of 2%.

As long as this does not represent deflation (that may occur in Europe), the curse of market economies, then this must be good news for interest rates and private sector/public sector wage growth.

The much-heralded Interest rate increase may be pushed into 2015 instead of Q4 of this year and its subsequent impact on mortgage rates that has to be good news for the housing sector.

Although there has been reasonably good growth in house prices over the past year there is a notable cooling in all price ranges that must allay the concerns of the Treasury, BOE and the IMF.

With inflation being so low and with modest increases in wage growth the ‘feel good factor’ may spread outside of the south east regions enabling the government to gain some credit for the good work that they have done on the economy and this may be reflected in a Tory government after the next election.

This ‘feel good factor’ is the key to a positive result for the Tory’s and has been noticeably absent despite the positivity of the economic headlines.